San Francisco Tax Attorney
IRS & California Tax Defense

Yes, and this is one of the most common audit triggers for San Francisco tech professionals. When you exercise incentive stock options (ISOs), the spread between the exercise price and fair market value creates an alternative minimum tax (AMT) adjustment that the IRS closely monitors. RSU vesting creates ordinary income that must be reported even if you don't sell the shares. Discrepancies between the income reported on your W-2, your brokerage statements, and your tax return are a primary red flag for IRS automated matching. If you've received a notice about unreported income from equity compensation, our IRS audit defense team can help you resolve the issue and minimize your exposure.

RSUs and ISOs are taxed very differently, and the distinction matters enormously for San Francisco tech employees. RSUs are straightforward: you owe ordinary income tax when the shares vest, based on the fair market value at vesting. ISOs are more complex — there's no regular income tax at exercise (if you hold the shares), but the spread triggers AMT. If you sell ISO shares within one year of exercise or two years of grant, you lose the favorable capital gains treatment, and the entire gain becomes ordinary income. Many Bay Area employees hold both types simultaneously, creating layered tax obligations that require careful planning. Our team handles tax optimization for equity compensation regularly.

Statistically, yes. IRS audit rates increase significantly at higher income levels. Taxpayers with incomes above $1 million are audited at roughly five times the rate of average earners, and the IRS has received additional funding specifically to increase enforcement on high-income individuals. For San Francisco high earners, the combination of large W-2 incomes, equity compensation, investment income, and complex deductions creates multiple points where the IRS's automated systems may flag your return. Separately, the California FTB conducts its own audits of high-income residents — and their residency audit program specifically targets people who claim to have left the state. If you're earning above $500K in the Bay Area, proactive tax defense planning is essential.

If you are a California resident working remotely from San Francisco, California taxes your worldwide income — regardless of where your employer is located. However, complications arise when you travel to your employer's state for work, potentially creating tax obligations in that state as well. Some states have reciprocity agreements; others do not. If you receive equity compensation from an out-of-state company, the sourcing rules for stock option and RSU income can create multi-state tax obligations. Additionally, your remote work from California may create nexus for your employer, triggering corporate tax obligations in California. These multi-state tax issues require careful analysis to avoid double taxation and audit exposure.

Leaving California to avoid its 13.3% top income tax rate is increasingly common among San Francisco high earners — and the FTB knows it. California's Franchise Tax Board operates one of the most aggressive residency audit programs in the country, specifically designed to challenge taxpayers who claim to have established domicile in states like Nevada, Texas, Florida, or Washington. The FTB examines dozens of factors: where you maintain your primary home, where your family lives, where your bank accounts and financial advisors are located, your voter registration, your professional licenses, your social and religious affiliations, and even your Amazon delivery addresses. If you've relocated from SF but still maintain any ties to California, an FTB residency audit is a real risk. Our FTB defense team handles residency audits regularly and can guide you through the process.

No. For IRS matters, your attorney can represent you from anywhere in the United States — all IRS proceedings are conducted by correspondence, phone, or virtual meeting. For California state tax matters (FTB, CDTFA, EDD), any California-licensed attorney can represent you statewide regardless of office location. What matters is your attorney's depth of experience in tax controversy and their understanding of the issues that affect Bay Area taxpayers. Brotman Law is headquartered in San Diego and represents clients throughout the Bay Area. Our practice is remote-first — phone and video conferences are standard, and Bay Area clients have told us they prefer this approach to in-person meetings.